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Section 24 Tax Changes

Property Tax Changes are Here

So far the effects of Section 24 have not been felt by landlords. It will only be noticed when landlords file their Tax Returns for 2017/18 and learn that they are having to pay more Income Tax even though their profits may be the same. To make it even worse Section 24 is being phased in over the next 4 years so the full effects of Section 24 will only be realised with the 2020/21 Tax Return.

A business pays tax on it's profits, that is on the difference between Income and Expenditure and this is laid out in Generally Accepted Accounting Principles (GAAP). These Principles have been amended by Section 24 of the Finance Act (No 2) 2015 which changes the way that profit is calculated for landlords.

In essence a landlord who has their property portfolio held in their individual name is not allowed to claim the mortgage interest payments as an expense. The result is, that on paper, their profits will increase and therefore so will their Income Tax even though the reality is that their profits have not actually changed. This will be particularly painful for higher rate taxpayers.

Strangely this Amendment doesn't apply to any other business, not even to landlords who hold their properties in a company. Where is the logic in that?

The amendment is also introducing a new Finance Tax Relief of 20%. So if you're a lower tax payer (20%) the amendment makes no difference unless the increased profit pushes you into the Higher Tax bracket.

No wonder that landlords are feeling victimised! For many, 'It's the straw that broke the camel's back' and consequently they are selling their properties. This of course presents an opportunity for those with the knowledge.

If you know of any landlords who are contemplating selling up please point them in our direction as we may be able to help them.

Make Money from Property Without Owning It

Sounds crazy I know, but isn't that exactly what Estate Agents and Lettings Agents do? So if they can manage it, can you and if so, how?

Most people would agree that property is a sound investment but not everybody has the time, knowledge or inclination to build a property portfolio and most assume that you need a lot of money to get started.

Changes in the way that landlords operating in the Private Rented Sector are taxed means that many will pay significantly more Income Tax which could lead to the portfolios making a loss. This is possibly 'the straw that broke the camel's back' and has caused a lot of existing landlords to rethink their current position, resulting in many wanting to sell up because they've simply had enough.

However for many landlords it is not that simple because many will be tied into mortgages that carry heavy redemption charges making an exit a very expensive undertaking. On top of that the sale of property can create a Capital Gains Tax liability for the exiting landlord. So it would appear that unless the landlord is prepared to take a heavy financial hit, he's stuck.

We at Creative Property Professionals think 'outside the box' and can help landlords in this situation in various ways depending on their circumstances and preferred outcomes. In essence we can take over the property from them. We'll find tenants and manage the property for the landlord including dealing with any maintenance issues. We'll pay the landlord a fixed amount per month irrespective of whether the property is tenanted or not. This arrangement means that landlord can effectively forget about their properties and get on with life; having taken the necessary steps to phase the exit from property as the circumstances change and it becomes more financially viable.

To come back to the title, there is of course another way of making money from property without actually owning it. That is to simply invest in a property project that is being run by a third party. We at Creative Property Professionals run a number of such projects and offer our investors excellent rates of interest.

We're passionate about win-win scenarios for all concerned, and we're always happy to work for mutual benefit. If you, or anyone you know would like to prosper from our approach, let's talk.

The Return OF Your Money Beats A Return On Your Money

I am more concerned with the return of my money than the return on my money.Mark Twain

When I first came upon the quotation above, it really resonated with me.

On several occasions in the past, and with 20:20 hindsight, I could see that I'd never really considered the depth of this concept as paramount when assessing an investment opportunity. Now I can clearly see that not only do fundamental elements of security come into play, but also the possibility of dramatically increasing the ability of every pound to generate a return many times over.

Naturally, with some property investment opportunities, there is scope for your investment funds to be secured against assets. This may be in the form of a charge secured against the property you are considering investing in, or an alternative property may be offered for your hard-earned cash to be backed-by. Other assets may also be put forward, and may well be suitable to provide a hedge.

As a secured creditor, you gain a tremendous amount of protection and leverage with your debtor if things go wrong.

Most people get that, and this is one of the primary reasons why banks will consider lending you money for investment in a property, but not for a stock market share.

What hadn't dawned on me initially is that if the return OF your money could be structured in such a way as to be returned in a timely fashion, that you could re-use the funds and 'rinse and repeat' as frequently as possible.

Yes, you could put up your funds as a deposit on a single property purchase, and re-mortgage once the property has gained value, effectively releasing your original capital, but this could take years - maybe even a decade!

What if you could put £100K into a project, backed by a charge against an asset, receive a decent rate of return ON your money, AND have the capital and return paid back to you within 12 months?

How many times would you repeat the process?

If you're like me, then then answer is: "as many times as possible, please!".

Don't Create a Job For Yourself

If we've met or spoken before, you will probably know that I invest in property projects throughout England.

Recently, one of my local property friends asked me how this is possible. Clearly I can’t just jump in the car and pop around the corner should a problem arise. I’ve lost count of the number of times that I've been asked this and yet the answer for me is simple; I’m a property investor - not a landlord.

There's a big difference!

As I live far from a number of properties I own, it prevents me from being tempted to get involved in the day to day ‘affairs’ that would waste my time and eat into my day! I have learned to see this as a positive, effectively forcing me to embrace the power of leverage. A clear example of this is utilising a property management company, such as a letting agent, to deal with tenants and facilitate maintenance.

For me, the distinction is that a property investor works on the business - not in it! I don’t see it as an efficient use of my time to be dealing with sourcing, refurbishing and tenanting properties plus the associated issues that undoubtedly arise from time to time.

There are many things that I can pay other people to do - relatively cheaply. By outsourcing all of the administrative elements of my business, I can free up my time to continue to build my property related income. For me that’s a no-brainer!

Are You Clear on Your Property Investing Strategy?

Some people we meet have sometimes felt overwhelmed and confused when it comes to making money through property.

How about you? Are you unsure where to start or what exactly it is that you need to do next?

When we started as property investors many years ago, we had no idea what specifically we were going to invest in. It was simply a case that we just knew that property was lucrative. Once we discovered the idea of working once and then reaping the financial benefits through passive income (possibly for ever!) it all made perfect sense.

Others were doing it, so why not us?

You may also relate to being passionate about something, being surrounded by lots of successful people, yet not really knowing yourself where or how to take effective action.

One of the overriding principles we teach is to F.O.C.U.S. (Follow One Course Until Successful). Property is full of ‘shiny pennies’ which can lure and distract you into thinking that’s what you should be doing. "Let's do this as I hear 'so-and-so' is making an absolute fortune using that strategy..."

Have you been there?

We have! If this sounds familiar, then we would ask you to do the following:

Think about your values and exactly where you want to be in life. In as much detail as possible, paint a picture of what you want your life to look like within the next 5 to 10 years. Where are you living? Who do you spend time with? Write everything down. Review and refine every 3 to 4 months.

Once you have determined your future vision, select a strategy that best fits your circumstances. How much time do you have to dedicate to making your desired outcome a reality? What resources, skills and knowledge do you have access to?

Once you have picked your strategy, STICK WITH IT - for AT LEAST a year. Don't be one of the many people that put in all of the hard work up-front but then give up too early, as they don’t see the rewards quickly enough and so skip onto something else. The irony is that often it's just as all the effort is about to pay off!

It is often said that property isn’t ‘get rich quick’ - it’s ‘get very rich in a reasonable amount of time’! Most people overestimate what they can achieve in a year, but massively underestimate what can be done in a decade. If you keep switching strategies and chasing the 'shiny pennies', then you’ll more than likely keep going back to square one.

If you have any thoughts or comments on any of the above, then please do get in touch. We read and respond to every email personally and would love to hear from you.